Also known as the unincorporated small business tax discount, the income tax offset for small business can reduce the tax you pay by upto $1,000 each year.
The offset is worked out on the proportion of tax payable on your business income.
- must be carrying on a small business as a sole trader or
- have a share of net small business income from a partnership or trust (beneficiary).
- have an aggregated turnover of less than $5 million for the 2016–17 income year onwards.
ATO will work out the offset based on the amounts shown on the income tax return. The amounts are the following:
- net small business income that was earned as a sole trader
- share of net small business income from a partnership or trust (beneficiary).
Claiming the offset
ATO will calculate the offset based on the amounts included on the tax return upon lodgement. The offset amount will be shown on the Notice of Assessment.
The Small business income tax offset calculator is available for those who are completing their tax return using myTAx and needs help in working out the income amounts.
The calculator works out income amounts to be used to work out the tax offset, and tells where to include them on the tax return. The ATO will work out the tax offset when they process the tax return.
Lodgement through tax practitioner
Another way is lodging the tax return through tax practitioners. However, ATO has recently released an update online stating that they have identified some common errors committed by tax practitioners when reporting client income to claim the small business income tax offset.
Practitioners may follow these tips according to ATO in claiming the offset.
- Include derived net income of the trust or small business partnership at either item 13D or 13E, not at 15A
- Item 13D or 13E should be the share of net small business income from a small business partnership (partner); and share of net small business income from a small business trust (beneficiary).
- Not to include the following types of income at item 15A, as they are not eligible for the offset.
- personal services income – this is reported at item 14A (however income from carrying on a personal services business is included at item 15A);
- Salary,wages, directors fees
- dividend income of directors.
- Complete all relevant fields, including sole trader business income at item 15A and including net income and not gross income
According to ATO, practitioners should also reduce the amounts at these items by any related deductions.
- decline in value for water facilities
- landcare operations
- prior year deferred non-commercial losses of partners claimed this year.
ATO use the labels to calculate the offset and they are not counted toward the client’s taxable income. A distribution from a partnership, or share of net income from a trust at the relevant item – 13N, 13L, 13O or 13U must also be included.